Italy Said to Pay Morgan Stanley $3.4 Billion
Source: Bloomberg News
When Morgan Stanley (MS) said in January it had cut its net exposure to Italy by $3.4 billion, it didnt tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.
Italy, the second-most indebted nation in the European Union, paid the money to unwind derivative contracts from the 1990s that had backfired, said a person with direct knowledge of the Treasurys payment. It was cheaper for Italy to cancel the transactions rather than to renew, said the person, who declined to be identified because the terms were private.
The cost, equal to half the amount to be raised by Italys sales tax increase this year, underscores the risk derivatives countries use to reduce borrowing costs and guard against swings in interest rates and currencies can sour and generate losses for taxpayers. Italy, with record debt of $2.5 trillion, has lost more than $31 billion on its derivatives at current market values, according to data compiled by the Bloomberg Brief Risk newsletter from regulatory filings.
These losses demonstrate the speculative nature of these deals and the supremacy of finance over government, said Italian senator Elio Lannutti, chairman of the consumer group Adusbef.
Read more: http://www.bloomberg.com/news/2012-03-16/italy-said-to-pay-morgan-stanley-3-4-billion-to-exit-derivative.html
Turbineguy
(37,372 posts)Goldman Sachs did the Greek Job.
HowHasItComeToThis
(3,566 posts)INTERNATIONAL FINANCE HAS BEEN STOLEN, SO SAD
Crowman1979
(3,844 posts)You know the people in Italy are going to be pissed.
aquart
(69,014 posts)Or, forgive the stereotype, ended up in landfill? NOBODY?
Fool Count
(1,230 posts)and payout conditions on derivative contracts to bet on the same contracts? If the government
(Italian taxpayers) didn't make money on that deal, someone sure as hell did. And it wasn't only
Morgan Stanley.